Lawmakers in both parties are increasingly embracing the idea of price controls on medicines — and in doing so, they’re making a losing bet.

Price controls involve a fundamental tradeoff: lower prices today in exchange for less innovation tomorrow. Consider the “most favored nation,” or MFN, drug pricing proposal currently before Congress. It would cap U.S. drug prices at the lower rates paid in other countries — dramatically undermining the incentives that drive high-risk research and development (R&D).

Proponents of MFN are implicitly wagering that savings on existing medicines will outweigh the lost benefits of treatments never developed. But in fact, the opposite is true. That’s because modern innovation is increasingly aimed at treating disease earlier and preventing progression altogether — driving compounding human and economic benefits over time.

As drug innovation advances toward earlier intervention and better long-term outcomes, the societal costs of undermining it through price controls will only grow.

Developing a new medicine is expensive and extremely risky. On average, it takes over a decade and costs more than $2 billion. For every new drug that launches, nine candidates fail before completing the gauntlet of clinical trials necessary to win Food and Drug Administration approval. And much of the value of medicines comes from “follow-on” improvements developed after their initial launch, which require further spending and clinical study.

Companies and investors cannot take on those risks without confidence that if a drug succeeds, they will be able to earn the return on investment that enables them to continue to pursue new innovations. The United States has long been the world’s drug development powerhouse — accounting for at least half of global biopharma investment — because of its commitment to market-based pricing and strong patent rights, which provide investors the assurance they need.

By curtailing drugmakers’ expected returns, price controls would undermine these core incentives, discouraging companies from investing in valuable, high-risk research. And as drug research increasingly focuses on treating earlier stages of disease, the potential costs of undermining that innovation are only growing.

That’s because addressing disease at earlier stages can help forestall potential productivity losses and costly health complications, creating substantial long-term benefits.

Research I conducted with colleagues at the University of Chicago found that from 2000 to 2024, nearly 60% of improvements made to existing cancer medicines focused on treating the disease earlier in its course.

Consider Keytruda, an immunotherapy that began as a treatment for advanced melanoma. Over time, follow-on R&D added over 40 indications across numerous cancers — including early-stage applications that allow treatment to begin before cancer worsens.

Imfinzi followed a similar trajectory: Originally approved to treat advanced bladder cancer, the immunotherapy now helps patients with certain types of early-stage lung and stomach cancers.

Or take the multiple myeloma immunotherapy Darzalex Faspro. In November, it became the first drug approved to treat smoldering multiple myeloma, the precursor condition that can eventually develop into the active blood cancer. Clinical trials showed the therapy cut the risk of progression to multiple myeloma or death in half.

These early interventions offer a valuable way to lessen strain on the healthcare system.

By the same token, addressing disease before it debilitates patients may also bolster economic productivity. Research has estimated that drug innovation increases productivity by 4.8 million workdays per year and $221 billion in annual wages.

Price controls would cut off these downstream benefits at their source. Blockbuster medicines are the exceedingly rare successes companies rely on to finance the rest of the R&D pipeline. Capping companies’ returns on these breakthroughs would undermine the continued research needed to improve them, develop new drugs and generate benefits that ripple across society.

We’ve seen in recent years how price controls gut incentives for drug development. The 2022 Inflation Reduction Act, which enabled Medicare to set prices on certain medicines, has forced companies to h alt more than 55 drug R&D programs since it became law.

The repercussions of MFN would be even greater. My colleagues and I estimate that applying MFN pricing in Medicare and Medicaid could cut drug R&D spending roughly in half, preventing roughly 500 drugs and follow-on improvements from being developed over the next decade.

If policymakers impose drug price controls in pursuit of short-term savings, they risk sacrificing even greater long-term benefits. Medical innovation increasingly creates value not merely by treating disease, but also by treating it before it becomes more severe, disabling and costly to manage.

Medical breakthroughs are not the pinnacle of progress. They are proof that the most valuable innovations still lie ahead — if we preserve the incentives to develop them.

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Tomas J. Philipson is an economist at the University of Chicago and served as a member and acting chairman of the White House’s Council of Economic Advisers from 2017 to 2020.

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